i keep getting the wrong answer. please help! Microbiotics currently sells all o
ID: 2400938 • Letter: I
Question
i keep getting the wrong answer. please help!
Microbiotics currently sells all of its frozen dinners cash on delivery but believes it can increase sales by offering supermarkets 1 month of free credit. The price per carton is $130, and the cost per carton is $80 The unit sales will Increase from 1080 cartons to 1140 per month if credit is granted. Assume all customers pay their bills and take ful advantage of any credit period offered a. If the interest rate is t% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Change in total monthly profit b. If the interest rate is 1.5% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to alil customers? (Do not round intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.) Change in total monthly profit ut the firm can offer the credit only as a special deal to new customers.while existing C. Assume the interest rate is 15% per month b customers will continue to pay cash on delivery What will be the change in the firm's total monthly profits on a present value basis under these conditions? (Do not round intermedilate colculations. Round your onswer to 2 decimel places) Change in total monthy proitExplanation / Answer
Solution:(a):
Present value of a cash on delivery sale = $130 - $80
= $50
Under the present cash on delivery policy, unit sales equal 1,080 cartons per month: $50*1080 = $54,000
If credit is extended, sales increase, but present value per carton decreases to: (present value of Revenue - Cost) = $(130/1.01) - $80 = $48.713 per carton.
Therefore, change in total monthly profit
= (48.713*1140) - $54000 = $1,533
Solution:(b):
In case of interest rate at 1.5%, Present value of per carton decreases to: (Present value of Revenue - Cost)
= $(130/1.015) - $80 = $48.079 per carton.
Therefore, change in total monthly profit
= (48.079*1140) - $54000 = $810
Solution:(c): The PV of old customers will not be affected and the PV of new customers will be positive.
Additional sales gained by extending credit is 60 cartons.
The profit margin in present value terms
= $(130/1.015) - $80 = $48.079 per carton.
Therefore, change in total monthly profit
= (48.079*1140) - $54000 = $810
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